Big Problems and How Startups Solved Them

Even the most realistic entrepreneur underestimates the difficulties in building a business.

Sure, everyone foresees challenges in raising capital, managing employees, assessing the competition -- all the demands that sound like business-school courses. But ask anyone in the real world: Those are just the barest start.

You never know what else the gods will throw your way. A war? A recession? Technology evolving and obsolescing before your eyes? Excessive growth? There's no end to the obstacles your business may encounter.

So what sets apart the entrepreneurs who surmount these obstacles from those who don't? What qualities do they need to possess to find solutions in an era of speedy, unpredictable change?

The answers are more obvious than you might think. For the entrepreneurs whose problems and solutions we present in this report, a clear set of characteristics made all the difference between success and failure. Having these qualities is no guarantee of success. But if you don't have them, you'd better figure out how to get them.

A clear strategy. A well-defined plan can keep a ship on course when the winds would otherwise blow it off the map. Metaphase Design Group Inc., of St. Louis, for example, has defined its mission as pursuing only in-depth, high-end, intensively researched design work for its clients. Its product isn't cheap, but it has stuck to its gold-standard plan amid a recession and cost-cutting everywhere. Adhering to that strategy gives its leaders the backbone to turn away lesser business that dilutes its mission. And they are thriving through the weak economy.

Flexibility. Successful entrepreneurs have a plan, full of detail and rich in data. But they are willing to abandon it when the customers don't follow. They cut losses and retool fast.

Neil Peterson started Flexcar in Seattle, an innovative time-sharing plan that he hoped would attract business from car buyers who didn't want to buy and were frustrated with the rigid, traditional rental agencies. Though it was popular in Europe, he wasn't making headway in the U.S., where drivers take for granted the convenience of a car and its place as a status symbol. Meeting that resistance, he refined his marketing campaign to steer it toward universities and businesses, where the sales pitch made sense.

A realistic view. Some entrepreneurs, enamored of their vision, swallow it whole and lose the dispassionate judgment they must exercise. "They have to be able to strip away the hype and be brutally honest with themselves and their backers," says James Schrager, professor of entrepreneurship and strategy at the University of Chicago's graduate school of business.

This is particularly important following the mass hypnosis of the dot-com era. "Investors want to see seasoned analysis, logical reasoning," he says.

Such clear-eyed thinking helped the founders of Hat World Inc. in Indianapolis recognize that they were in over their heads when an acquisition trebled the company's size overnight. Rather than celebrate and have a big time presiding over a huge operation, its founders pulled back to hire an experienced chief executive fast.

Ethical behavior. Need we say it following Enron, Tyco and the host of other governance scandals that have befallen Corporate America? Investors and government regulators are operating on Level Orange vigilance. Bad behavior has a way of catching up with a business.

"You should fix the problem honestly," says the University of Chicago's Dr. Schrager, "or if you can't fix it honestly, you shouldn't be in that business. It's that simple."

A robust network. Successful entrepreneurs turn to their Rolodex in times of need. They make it a point to do favors when they can, because they know that their turn to ask for help will come.

Jill Blashack built Tastefully Simple, an Alexandria, Minn., gourmet-food distributor, which sells through home parties. She went from $100,000 in sales in 1995 to $78 million last year -- all on a network that grew exponentially. A friend was her first investor. A friend led her to the president of a similar company that shared strategies and results with her. And the at-home-party model worked as friends and acquaintances all added their own networks.

A global perspective. Global markets may provide solutions to problems that were unthinkable a decade or two ago. Shifting labor across borders or invading new markets can alter the course of a business.

Mark Goldstein, a Pittsburgh immigration attorney, was doing great business in the 1990s as he helped companies deal with immigration issues as they hired software engineers from India. When the tech boom ebbed, he turned that inside out, and began searching for overseas companies looking to break into U.S. markets.

An ability to deal with technology. Every entrepreneur has to make peace with the fact that technology changes nearly all aspects of his or her business, even if the company isn't in tech. It might lower costs -- for you or a competitor. It could make your product obsolete or make it the must-have.

Evolve or get left behind, says James Bird, a corporate-film producer in Cincinnati. Mr. Bird recently made the switch to high-definition video-production work to set his business apart from his competitors.

Passion. Not much can surpass the single-minded drive of an entrepreneur committed to solving a problem.

Grant Goodman, in Phoenix, runs a heavy-trucking company and uses environmentally friendly biodiesel fuel to reduce pollution in his city. The higher costs deterred him, but only temporarily; he's planning to manufacture his own biodiesel fuel, at least at break-even costs.

His passion for the best way to do business is helping to solving environmental problems for others. And selling his services as a "green" company can't hurt either.